Income Tax Return: An Overview

What is Income Tax Return?  
 

An Income tax return (ITR) is a form used to file information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her income. In case the return shows that excess tax has been paid during a year, then the individual will be eligible to receive an income tax refund from the Income Tax Department.

As per the income tax laws, the return must be filed every year by an individual or business that earns any income during a financial year. The income could be in the form of a salary, business profits, income from house property or earned through dividends, capital gains, interests or other sources.

Tax returns have to be filed by an individual or a business before a specified date. If a taxpayer fails to abide by the deadline, he or she has to pay a penalty. 

Income From Profession

An income from a profession means the income earned due to the skill you possess (intellectual skill or a manual skill). As per the Income Tax Act, income from the such profession will be taxable under the head ‘Profits and Gains of Business and Profession’.The income earned by a freelancer is also taxable under the same head.

For the purpose of taxation, certain persons carrying on profession or business have been divided into two categories and freelancers can fall under either of these categories"

Category 1 - Specified Professionals     
Category 2 - Others.

Specified Professionals

As per Section 44AA, for the first category following professions have been Specified :

Profession of Legal     
Profession of Medical     
Profession of Engineering     
Profession of Architecture     
Profession of Accounting     
Profession of Technical Consultancy     
Profession of Interior Decoration     
Profession of Film Artist     
Profession of Authorised Representative

Presumptive Taxation

Sec 44ADA contains the provision for computing gains from the profession on a presumptive basis.

“A sum equal to or higher than 50 % of the total gross receipts”     
shall be deemed to be the gain from such profession under the head "Profits and gains of business or profession.”     
In simple words, if a person is a specified professional and has gross receipts less than or equal to Rs. 50 lakhs then sec 44ADA is for him!     
As per sec 44ADA, he has to offer at least 50% of his gross receipts as profit i.e. the amount on which tax shall be levied. or, we can say out of your gross receipts, the government considers 50% as expenses and 50 % as profit.

Claiming expenses under 44ADA

Any deduction covered u/s 30 to 38 i.e. expenses incurred in relation to your business or profession shall be deemed to have been already given effect and therefore no deduction under those sections shall be allowed. This means once offering income for taxation under this section will abate from claiming rent, commutation, telephone bills etc. However, deductions under Chapter VIA (Sec 80C, 80D etc.) such as LIC, PPF, Mediclaim etc shall continue to be allowed.